Question

5. If there are no transactions in the official financing account of a country's balance of payments, it is likely that:

		A) this country must not be engaging in international trade.
		B) this country has a pegged exchange rate and persistent surpluses on its balance of payments.
		C) the exchange rate is being determined freely in the foreign-exchange market.
		D) the central bank has pegged the exchange rate so that the current and capital accounts sum to zero.
		E) there must be disequilibrium in the foreign-exchange market.

Answer 1

The balance of payments can be defined the record of all international trade and financial transactions made by a country's people.

This three components.

1. Current accounts

2. Financial accounts

3. Capital accounts

The current account measures international trade of goods and services.

The Financial account records the trade of assets across countries.

The capital account records the financial transactions that don't affect the nation's economic output.

Therefore if there are no transactions in the official financing account of a country's balance of payments, it is likely that this country must not be engaging in international trade.

Hence option A is the correct answer.